Thursday, November 7, 2013

Zimbabwe Government in Budget Crisis as the Governement fails to raise funds

Finance Minister Patrick Chinamasa
ZANU PF Finance Minister Patrick Chinamasa is now facing the grim reality that “his party cannot rig the economy as they did the election”, an economist has said.
Chinamasa told a pre-budget summit, which ended at the weekend in Victoria Falls, that there will be no budget statement in November as was widely expected.
The national budget will now be presented “possibly in December” or in time for the constitutional deadline of January, to allow the Minister more time to consult.
But Harare-based economist Vince Musewe says the country is facing a crisis, and no amount of consultation will generate revenue where there is none.
Speaking to SW Radio Africa Tuesday, Musewe said: “Many companies are closing down for lack of disposable income, and this means that the revenue base for the government is dwindling as they can’t collect taxes from employees or firms.
“Any budget must first determine the revenue base that it gets. Until you can resolve revenue issues, there is little point in presenting these budgets.”
Musewe said one option out of the current scenario is through borrowing, but added that this will be a tough call for the country given its terrible credit record.
“We even have a Treasury that raids private accounts and refuses to pay and this fans a genuine lack of confidence and uncertainty in the system. It is not surprising that no-one is putting money in the system and the sooner government realises that we are in a crisis and starts addressing this the better,” Musewe said.
The first option is to implement democratic reforms and then go cap in hand to the West to request emergency relief, the economist said.
Given the country’s poor credit history, very few lenders will be willing to lend, as has already been demonstrated recently when even regional countries declined Zimbabwe’s request for money to fund its polls.
Last month, Chinamasa was in Washington where he tried and failed to negotiate financial support and a write-off of the country’s estimated $11 billion debt owed to multilateral lenders.
The second option Musewe said, is to raise revenue from the country’s vast resources, but this calls for transparency, accountability and sound economic policies, which the current administration has been unwilling to subscribe to.
“We can talk about the country’s mineral wealth which should be funding the budget, but the opaque deals which ZANU PF signed during the coalition government were never meant to benefit the country but were aimed at enriching a few individuals and groups within that party.”
The Chinese, ZANU PF elites and the country’s military control the country’s murky diamond sector, as revealed by international rights group, Global Witness.
The country sits on one of the world’s largest diamond deposits and the world’s second largest platinum reserves, in addition to an array of other mineral riches.
Last year diamond revenue from Marange was expected to be in the region of $600 million, but despite government owning a 50% stake, nothing had been remitted to Treasury by June this year.
Last month, the ZANU PF government launched another of its many economic blueprints ostensibly aimed at providing “a new trajectory of accelerated economic growth and wealth creation.”
Musewe dismissed this as pie-in-the-sky: “We must begin to implement genuine reforms and move the country towards a democratic environment. Without that, we can talk and have economic blueprints but the reality is that people are starving and need food.
“We are facing a self-manufactured crisis and Mugabe’s government needs to shun past mistakes and take full responsibility for what it has created. The country needs friends and if indeed China is a friend, why aren’t they giving us financial support?
“Now that the elections are over, people are going to realise that ZANU PF will not be able to rig the economy to fulfil its election promises of hiking wages, providing, water, electricity, as Morgan Tsvangirai warned.”
Musewe’s observations come at a time when health institutions are facing major challenges such as dilapidated infrastructure and a lack of medical supplies. Health Minister David Parirenyatwa last week pleaded with the private sector to step in and adopt wards for renovation, in a bid to resuscitate the ailing institutions.

Finance minister Patrick Chinamasa’s delay in presenting the 2014 national budget betrays massive economic difficulties, indecisiveness and empty State coffers, analysts said yesterday.
This comes after Chinamasa told a pre-budget consultative seminar in Victoria Falls last week that he needed more time before making his maiden budget presentation since assuming the finance portfolio in a substantive capacity on September 11.
The national budget is traditionally tabled before Parliament by mid-November and the postponement is unprecedented.
“The delay indicates that he faces difficulties and has no clear way on which direction the economy should take,” said independent economist John Robertson.
“The notion that the delay is to have more time for consultation is misleading. What the country needs right now is to deal with serious challenges such as boosting agriculture and increasing industry’s capacity to produce.”
Robertson said there was no way the minister could make up the budget figures without funds amid burgeoning recurrent expenditure and dwindling revenue collections.
“The government can no longer continue to rely on the already overburdened individuals and companies for revenue,” Robertson said.
“What needs to be done is to articulate economic policies that attract foreign investment and create an enabling environment for business.”
He noted that the government will have to rely on external budgetary support but it was unfortunate that Zimbabwe had reputational risk emanating from its failure to address its debt overhang of over $10,7 billion.
Government is frantically looking for budgetary support from China, and the request has been tabled before ambassador Lin Lin.
“As a country we need to deal with issues to restore investor confidence,” Robertson said.
“Right now we have few friendly countries who can lend us money without thinking twice about the risk of not getting it back. Even China has set conditions that we cannot even meet unless we demonstrate our sincerity through austerity measures.”
The budget presentation will come at a time when the country is dogged by inherent economic challenges — chief among them lack of investor confidence coupled with policy inconsistencies, an acute liquidity crisis and massive power and trade deficits among other challenges.
Former Finance minister Tendai Biti said Zimbabwe desperately needs external budgetary support to help revive its economy.
He said the greatest challenge in formulating the country’s 2014 budget will be limited resources.
“...the task is always that of managing a tiny envelope in an ocean of high demand and huge expectations,” Biti said.
He noted that dwindling national revenues will exacerbate pressure on the post-election budget.
“With accrued arrears of over $300 million and other unbudgeted for expenditure such as the $150 million Zambia maize loan scheme and the recent debt accrued in respect of the $160 million government agriculture input scheme, it is Armageddon,” Biti said.
This comes as the Zimbabwe Revenue Authority (Zimra) recently announced that it missed revenue collection targets in the third quarter, collecting $897,3 million against an anticipated $904,9 million.
Biti — who is also the opposition Movement for Democratic Change’s shadow Finance minister — said it was imperative for government to secure financial support.
“The assumption that China or South Asia will provide resources is one that will be tested and its naivety proven,” Biti said.
“It is therefore easily foreseeable that the Zimbabwean dollar has to be brought back to allow monetisation of the humongous obligations and election promises made.”
Independent economist Christopher Mugaga said the impact of delaying presentation of the 2014 national budget was “very limited because not much is expected in terms of substance given the already depressed revenue inflows after adverse outcome from revenue targets.”
“It will not necessarily affect economic growth. After all, these funds (for the budget) are to be used effectively next year,” he said.
Mugaga pointed out that announcing “a depressed and disappointing budget was going to affect the economy more than the expectations of what the budget will be like.”
“Literally, there is nothing to announce, government needs funds which are not there,” Mugaga said.
“I am sure the whole budget envelope will not exceed $3 billion. The minister cannot throw himself into the same dungeon his party was criticising Biti for, so he believes delaying tactics will bring a modicum of decency and difference to Biti’s last three budget statements.

Unfortunately, the economy cannot be tricked.”
Last year, the economy grew by 4,4 percent and this year’s growth has been downgraded from 5 percent to 3,4 percent as a result of declining metal prices and drought.
In its 2014 outlook, the World Bank forecast Zimbabwe’s growth to be around 3 percent this year with little prospects for recovery in 2014.
“The economy faces uncertainty both from expected volatility in the global economy, and on the domestic front after July elections, amidst worsening macroeconomic indicators and increased vulnerability of the banking sector,” the World Bank statement said.
As Zimbabwe’s external position has been supported by substantial short-term capital inflows, the situation would be compounded by the risk of capital outflows from emerging markets, as the United States Federal Reserve progressively unwinds its expansionary monetary policy.
“Growth performance has been stymied by continued slowdown of the key sectors of the economy, amidst easing of international commodity prices, low investment, tight credit conditions, and policy uncertainty after the July elections,” the bank said.
A fortnight ago, Zimbabwe narrowly missed its third-quarter budget revenue targets as economic growth slowed and mineral royalties fell, underlining the tough task that Chinamasa faces to lift the economy.
The Zimbabwe Revenue Authority (Zimra) collected $897 million between July and September against a target of $905 million.
“The national tax collector said many companies were scaling down operations or were totally shutting down.

“The economy continued to face challenges such as erratic power supplies, liquidity constraints and depressed industrial capacity, among other challenges,” Sternford Moyo, the Zimra chairman said.

Source:SW Radio Africa/ Dailynews

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